The Safeguard Mechanism has been in place since 1 July 2016. It requires Australia’s highest greenhouse gas emitting facilities to keep their emissions below an emissions limit (baseline). If a Safeguard facility exceeds their baseline, they must manage their excess emissions. They can become liable to pay a pecuniary penalty if they fail to comply with the Safeguard Mechanism.

Safeguard Mechanism reforms

How did the Safeguard Mechanism work for financial years ending before 1 July 2023?

For financial years ending before 1 July 2023, the Safeguard Mechanism required Safeguard facilities to avoid increases in emissions beyond business-as-usual levels. Some Safeguard facility baselines adjusted with annual production, however the overall emissions limits remained relatively consistent over time.

If a Safeguard facility exceeded their baseline for a financial year ending before 1 July 2023, they were required to manage their excess emissions before the following 1 March by either:

• purchasing and surrendering Australian carbon credit units (ACCUs)
• applying for a multi-year monitoring period (MYMP) to allow more time to either purchase ACCUs or reduce emissions.

See The Safeguard Mechanism for financial years ending before 1 July 2023 for more information.

How does the Safeguard Mechanism work for financial years commencing on or after 1 July 2023?

For financial years commencing on or after 1 July 2023, the Safeguard Mechanism requires Safeguard facilities to reduce their emissions in line with Australia’s climate targets. Safeguard facility baselines will adjust with annual production, however the overall emissions limits tighten each year in line with Australia’s climate targets.

If a Safeguard facility does not exceed their baseline for a financial year commencing on or after 1 July 2023, they may be eligible to receive Safeguard Mechanism credit units (SMCs). SMCs incentivise Safeguard facilities to reduce their emissions below their baselines.

If a Safeguard facility exceeds their baseline for a financial year commencing on or after 1 July 2023, they have several options to manage their excess emissions, including:

• purchasing and surrendering ACCUs or SMCs
• applying to borrow baseline from the following year (to be repaid with interest)
• applying to become a trade-exposed baseline-adjusted (TEBA) facility and receiving a discounted decline rate (up to 3 years)
• applying for a MYMP to allow more time to reduce emissions.

See The Safeguard Mechanism for financial years commencing on or after 1 July 2023 for more information.

Legislative Framework

The Safeguard Mechanism is enacted through the National Greenhouse and Energy Reporting Act 2007 (the NGER Act) and other legislation. Much of the detail is set out in the National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 (Safeguard Rule), alongside the Carbon Credits (Carbon Farming Initiative) Rule 2015, and the Australian National Registry of Emissions Units Regulations 2011.

Safeguard and the NGER scheme

The Safeguard Mechanism is administered through the National Greenhouse and Energy Reporting (NGER) Scheme and is designed to minimise additional mandatory reporting requirements.

This means that as well as keeping their net emissions below the baseline, Safeguard facilities must adhere to the reporting and record keeping requirements of the NGER Scheme.

Safeguard obligations rest with the person with operational control of the facility. This person is referred to as the 'responsible emitter' and may be an individual, a body corporate, a trust, a corporation sole, a body politic, or a local governing body.

Responsible emitters for Safeguard facilities who are not already registered under the National Greenhouse and Energy Reporting Act 2007 must apply to register. The requirement to register as a responsible emitter applies to subsidiaries of a registered controlling corporation’s corporate group. However, if a controlling corporation is also a responsible emitter, it is not required to register a second time.

Applications for registration are due by 31 August following the financial year in which the facility first exceeds emissions of 100,000 tonnes CO₂-e of covered emissions.

Coverage

The Safeguard Mechanism applies to facilities that emit more than 100,000 tCO₂-e of covered emissions in a financial year (the Safeguard threshold). This extends to businesses across a broad range of industry sectors, including electricity generation, mining, oil and gas extraction, manufacturing, transport, and waste.

Covered emissions are defined as scope 1 emissions, including direct emissions from fugitive emissions and emissions from fuel combustion, waste disposal, and industrial processes such as cement and steel making.

Some scope 1 emissions are not covered by the Safeguard Mechanism. These include:

• legacy emissions from the operation of a landfill facility (that is, emissions from waste deposited at the landfill before 1 July 2016)
• emissions which occur in the Greater Sunrise special regime area
• emissions from the operation of a grid-connected electricity generator in a year covered by the sectoral baseline
• emissions not covered under the National Greenhouse and Energy Reporting (Measurement) Determination 2008.

In limited circumstances, facilities that emit less than 100, 000 tCO₂-e may be eligible for SMCs.

Publishing reported emissions

The Clean Energy Regulator is required to publish information about all designated large facilities covered by the Safeguard Mechanism. This publication will occur after the relevant deadline for managing excess emissions from the prior financial year.

Information is also published about any designated large facilities that remain in an excess emissions situation on or after the 1 March compliance deadline.

See Safeguard data and Key dates for more information.